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Friday, November 2, 2007

After hitting five-year lows a day earlier, financial stocks continued to slide on Friday as investor concerns focused on Merrill Lynch and Washington Mutual. In the past few days, concerns seemed to shift from the companies' poor judgment and weak risk management to the possibility that business practices may not pass regulators' tests.

Shares of Merrill Lynch & Co. fell more than 7% Friday, retreating in the face of a Wall Street Journal report that the company has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities.

Washington Mutual may have to set aside some $412 million to $2.1 billion in extra reserves if a lawsuit filed by New York state's attorney general against the mortgage lender succeeds, a Keefe Bruyette & Woods analyst estimated on Friday.

U.S. stocks on Friday shifted in and out of positive territory as investors weighted a surprisingly strong October jobs report and an unexpected rise in factory orders against ongoing credit-related upheaval in financial stocks.

Deutsche's Mayo estimates $10 bln in fourth-quarter write-downsDeutsche Bank analyst Mike Mayo estimates there will be more than $10 billion in new write-downs during the fourth quarter, including $4 billion each at Citigroup bln subprime hit, Goldman estimates

UBS may take a subprime-related hit of $5.2 billion in the fourth quarter, according to Richard Ramsden, an analyst at Goldman Sachs. He calculated the estimated write-down based on the performance of credit-default spreads since the end of September.

Meredith Whitney, whose downgrade of Citigroup Inc. shares helped wipe out $369 billion in U.S. stock market value, said she was the only analyst on Wall Street with the guts to say the bank may cut its dividend.

Shares in Barclays fell as much as 8% to hit two-and-a-half year lows on Friday amid market talk of funding worries and speculation it is telling analysts to trim profit forecasts.

Men like Jim Chanos and Bill Ackman will be watching the collapsing share prices of companies such as Ambac and MBIA with a sense of triumph -- and the warm glow that comes from turning a fine profit. Both hedge-fund managers have long held short positions on the equities of one or other of these bond insurers -- known as monolines -- and have not been shy about condemning their business models or risk positions.